Bank Of Japan Keeps The Interest Rate Same, Sets Inflation Target

Bank of Japan kept the interest rate same at 0.1% as per today’s official monetary policy statement released by the Policy Board of the Bank of Japan but set an inflation target of 2% to maintain price stability and to fight the ongoing deflation.

“The newly-introduced “price stability target” is the inflation rate that the Bank judges to be consistent with price stability on a sustainable basis. The Bank recognizes that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening competitiveness and growth potential of Japan’s economy make progress. Based on this recognition, the Bank sets the “price stability target” at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) — a main price index. Previously, the “price stability goal in the medium to long term” was in a positive range of 2 percent or lower in terms of the year-on-year rate of change in the CPI and the Bank set a goal at 1 percent for the time being. This time, replacing a “goal” with a “target” and setting that target at 2 percent in terms of the year-on-year rate of change.”, the policy statement released by BoJ mentioned.

Japan inflation rates since 2005

Japan inflation rates since 2011

In order to pursue aggressive and targeted monetary easing, BoJ introduced open-ended asset purchasing method. ” The Bank will pursue aggressive monetary easing, aiming to achieve the above-mentioned price stability target, through a virtually zero interest rate policy and purchases of financial assets, as long as the Bank judges it appropriate to continue with each policy measure respectively. With respect to the Asset Purchase Program, after completing the current purchasing method, from January 2014, the Bank will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date.”, today’s policy statement mentioned.

USD/JPY witnessed an increased volatility with the policy board announcement. The pair went as high as 90.15 and then dropped to 88.89. EUR/JPY also saw suddeny volatility without a clear direction when the pair went as high as 120.16 and then dropped equally strongly to 118.65.